Asia-Latin America Update: Obama's Push to Join the TPP

• What is the Trans-Pacific Partnership?
• Asia and Latin America Step up Integration
• The TPP as an Asia-Pacific Trade Bridge
• The TPP as a Trade Model for Washington

The White House has backed the trans-Pacific partnership as its most substantial trade agenda item to date. In November, President Obama notified Congress of his intention to join the Trans-Pacific Partnership (TPP). While news that the administration plans to move ahead on its first trade initiative is encouraging, it remains to be seen how quickly the administration can move toward further trade expansion. The president lacks fast-track authority and appears unlikely to obtain it; trade agreements with Panama, Colombia, and Korea remain stalled; and concerns about human rights abuses in Vietnam or protectionist responses about dairy imports from New Zealand could impede the TPP’s progress.

U.S. interest in joining the pact is actually old news. In 2008, then-U.S. Trade Representative Susan Schwab announced that the United States hoped to join, but negotiations were put on hold while the Obama administration undertook a review of U.S. trade policy.

What is the Trans-Pacific Partnership?

Officially called the Trans-Pacific Strategic Economic Partnership (or P4), the agreement’s original members consisted of Singapore, New Zealand, Chile, and Brunei when the pact went into effect in 2006. Previously known as the Pacific Three Closer Economic Partnership (P3-CEP), the agreement was first announced at the 2002 APEC Leaders Summit in Los Cabos, Mexico, by Chilean President Ricardo Lagos, and Prime Ministers Goh Chok Tong of Singapore and Helen Clark of New Zealand. Brunei announced its interest in joining the pact in 2005 and was a full member when the agreement went into effect as the P4.

The TPP is a high-standard agreement, eliminating essentially all tariffs on goods and including chapters on services, intellectual property, and competition policy. The pact is unusual in that it allows more countries to join at a later date. Australia, Peru, and Vietnam asked to join after Schwab’s announcement in 2008. Negotiations to include these countries, as well as the United States, were put on hold following U.S. elections in 2008.

Asia and Latin America Step up Integration

In light of the current political realities in the Unites States—including a persistent protectionist sentiment as well as the lack of momentum on domestic priorities such as the stalled health care package—Latin America and Asia have pursued further economic integration. According to the latest figures from the Economic Commission for Latin America and the Caribbean, Asia continues to grow its market share in Latin America, up from 11.8 percent in 2008 to 14.3 percent in the first nine months of 2009. In 2000, the United States accounted for 61 percent of Latin America’s exports. By 2009, that number had dropped to 42 percent.

The United States risks being left behind if it chooses not to pursue further trade and investment liberalization, particularly as the rise of East Asian trade deals that exclude the United States continues unabated. In 2000, there were virtually no trade agreements in Asia. There are now more than 175 in force and 70 or so more under negotiations or awaiting implementation. With 96 percent of the world’s consumers living outside the United States, Washington’s exclusion from Asian initiatives could put U.S. exporters at a significant disadvantage at a time when exports present a potential bright spot for domestic economic growth.

Likewise, a number of Latin American countries, including Chile and Peru, are aggressively pursuing new connections across the Pacific in an effort to diversify their trading partners and reduce reliance on the U.S. market. Chile, an original member of the TPP, is the most open economy in Latin America after two decades of adhering to a pro-globalization model. In a signal that the stable policy has paid off, Chile recently became the thirty-first member of the Organization of Economic Cooperation and Development. Meanwhile, Peru ranks as Latin America’s most successful country in attracting new foreign direct investment (FDI), which grew by 28 percent in 2009—the only increase among the top six FDI recipients in Latin America. Like Asia, Latin American countries are taking steps to follow the Asian model and work toward creating regional trading blocs. At the 2007 Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in Sydney, Peru proposed the creation of an arc of the Pacific in which a group of Latin American countries would work together to develop a joint strategy for approaching Asia.

The TPP as an Asia-Pacific Trade Bridge

The TPP currently stands as the only agreement that includes multiple countries in both asia and the Western Hemisphere. As such, its greatest potential lies in what it could become—a vehicle for advancing trade and investment liberalization and integration across the entire trans-Pacific region. Many of the current and prospective TPP members already share bilateral trade agreements, presenting an opportunity to rationalize rules of origin and streamline customs administration. This convergence of existing agreements could go a long way to simplifying multiple agreements, particularly for small and medium-sized enterprises, which are often deterred by the complex rules of trade agreements. With the recent focus on inclusive economic growth in both the U.S. and APEC economic agendas, outreach to small and medium-sized enterprises in all participating countries could be prioritized to help take advantage of these new markets.

Ultimately, the TPP’s objective is to expand membership to other countries in the Pacific Rim. The agreement could be the precursor to the long-term goal of a Free Trade Area of the Asia Pacific, which would include all 21 member economies of APEC. The original TPP as drafted by New Zealand, Chile, Singapore, and Brunei also envisions members beyond APEC participating in the agreement down the road, perhaps providing an opportunity for additional Latin American countries to join as well.

The TPP as a Trade Model for Washington

As the first trade initiative announced by the new administration, the TPP looks promising. However, progress will likely be slow. Entrenched domestic opposition has already raised many of the same red flags that have kept trade agreements from moving forward. But there is reason to be optimistic. The administration is looking to develop a twenty-first century trade model that will allow the United States to reengage in and more fully benefit from the global economy. The TPP could be the vehicle to create this new model.